Question

Instructor-created question Question Help * A friend of yours bought a new sports car with a S4.000 down payment plus a $27,000 car loan that is financed at an interest rate of 0.50% per month for 60 months. After 2 years, the "Blue Book value of her vehicle in the used-car marketplace is $16,000 a. Calculate the required monthly loan payment on the car b. How much does your friend still owe on the car loan c. Compare your answer to Part (b) to $16,000. This situation is called being "upside down. What can she do about it? d.Н she decides to keep the car but pay $300 more each month, how many months will it take her to payo" the remaining loan she owes? a. The required monthly payment is $ 522.1 (Round to the nearest cent.) b.Your friend still owes $11777 6 on the car loan. (Round to the nearest dollar.) c. What is the best thing to do in this situation? Choose the correct answer below A. She should keep the car longer and hope the vehicle remains in good working order O B. In case the mileage is high, the car is worth more than $16,000 and she should consider selling it O C. She should sell the car immediately. D. She should stop paying out her loan as it is obviously unfair d. it will take her 15 months to payof the remaining loan balance (Round-up to the nearest month)

Answer 1

A	B	C	D	E	F	G	H	I	J	K
2
3		a)
4		Calculation of monthly payment:
5		Loan Amount	$           27,000.00
6		Duration of loan	60	Months
7		Monthly Interest rate	0.50%
8
9		RATE (Montly interest rate):	0.50%
10		NPER (No of Months):	60
11		PV (Loan Amount):	-$27,000
12		FV	0
13		TYPE	0
14		Monthly Payment :	$521.99	=PMT(D9,D10,D11,D12,D13)
15
16		Hence Monthly payment is	$521.99
17
18		b)
19
20		Calculation of Value of loan:
21
22		Value of loan will be the present value of all the monthly payments.
23		Monthly Payment	$521.99
24		Monthly Interest Rate	0.50%
25		Number of months remaining	36
26
27
28		Value of loan	=Present value of annuity of monthly payments
29			=521.99*(P/A,0.5%,36)
30			$17,158.20	=D23*PV(D24,D25,-1,0)
31
32		Hence Value of loan is	$17,158.20
33
34		c)
35
36		Value of car is $16,000 which is lesser than the value of loan as calculated above.
37		Thus there is negative equity on the loan.
38		Therefore she should keep try to keep the car in good condition so that the equity becomes positive in future.
39		Hence the first option is correct.